Administrative Court rules on third party access to licence exempt electricity distribution networks

07 Nov 2014

The Administrative Court (Green J) has today handed down an important judgment concerning the right of third party suppliers to access exempt electricity distribution systems for the purpose of supplying customers under Schedule 2ZA of the Electricity Act 1989 (“the Act”), implementing Article 32 of Directive 2009/72/EC (“the Third Package Electricity Directive”).

The case concerns the licence exempt electricity distribution network at Heathrow Airport, a substantial proportion of which is leased (“the Leased Network”) by Heathrow Airport Limited (“HAL”) to UK Power Networks (Services) Contracting Limited (“UKPNS”). Pursuant to a Distribution Agreement, UKPNS is required to manage and operate the Leased Network in exchange for substantial annual payments from HAL. When a customer connected to the Leased Network sought to switch to a third party supplier, a dispute arose as to which of UKPNS and HAL is the “distribution exemption holder” or “DEH” owing Schedule 2ZA third party access obligations in respect of the Leased Network.

The dispute was determined by the Gas and Electricity Markets Authority (“the Authority”), which decided that UKPNS was the relevant DEH on the basis of its contractual obligation to operate the Leased Network and the fact that it had greater control over the Leased Network than HAL. UKPNS applied for judicial review of the Authority’s determination essentially on the grounds that:

  1. Given the language used in paragraph 1(1)(b), Schedule 2ZA, the obligation to grant third party access applies only to a DEH that also sells electricity to the customer requesting a change of supplier – which UKPNS does not; and
  2. It was unlawful and/or irrational for the Authority to place the Schedule 2ZA obligations on UKPNS in circumstances where the Distribution Agreement prevented it from discharging those obligations without assistance from HAL.

Green J rejected the first argument, vindicating the Authority’s view that a purposive construction of Schedule 2ZA, in light of Article 32 of the Third Package Electricity Directive, must allow all customers connected to licence exempt distribution networks to choose their electricity suppliers and all suppliers to access these customers. This purpose would not be achieved by limiting the Schedule 2ZA third party access obligations to circumstances in which the DEH for the relevant network was also selling electricity to the customer at the time of the access request. The language used in paragraph 1(1)(b), Schedule 2ZA – in particular, the word “supply” – needed to be interpreted to give effect to that purpose, notwithstanding that such interpretation would give “supply” a different meaning in that provision than its meaning in other parts of the Act or the Directive.

In relation to the second argument, Green J did not deem it appropriate to rule on UKPNS’ detailed factual claims – many of which had not been raised before the Authority. He considered, however, that the Authority’s determination had proceeded on the erroneous legal basis that the third party access obligations could only fall on a single DEH. Instead, those obligations would apply to “all those with any degree of responsibility for the conveyance of electricity between the supplier and the customer” (original emphasis). He, accordingly, quashed the Authority’s determination and remitted it to be considered on the correct legal basis – noting that if both UKPNS and HAL were determined to have some sort of obligation under Schedule 2ZA, UKPNS’s concerns about its ability to satisfy that obligation could well fall away.

The UKPNS v GEMA Approved Judgment is available here.

Daniel Beard QC, Gerry Facenna and Ligia Osepciu acted for HAL, the Interested Party supporting the Authority.